LAWS(CAL)-1989-6-11

COMMISSIONER OF GIFT TAX Vs. RAMESH CHANDRA PATI

Decided On June 20, 1989
COMMISSIONER OF GIFT TAX Appellant
V/S
RAMESH CHANDRA PATI Respondents

JUDGEMENT

(1.) IN this reference under S. 26(1) of the GT Act, 1958, the following question of law has been referred to this Court for the asst. yr. 1968-69. The question is :

(2.) THE facts, in brief, are that Late Ashutosh Pati gifted a house property and some agricultural lands in favour of his three sons, viz., (1) Shri Ramesh Ch. Pati, (2) Shri Harish Ch. Pati, and (3) Shri Jogesh Ch. Pati. The GTO initiated proceedings under S. 16(1) of the GT Act, in reply to which a return was filed. Notice under S. 15(2) of the Act was issued and served on Shri Ramesh Ch. Pati since at the material time the donee (?) had died. In the absence of any compliance on behalf of Shri Ramesh Ch. Pati, the assessment was made under S. 15(5) of the Act. The assessee preferred appeal before the AAC. It was contended on behalf of the donee before the AAC that the assessment so made was without any legal sanction so also the valuation of the gifted properties was made excessive and without basis. The AAC rejected this submission made before him as he was of the opinion that the proceedings were initiated within the strict frame-work of the GT Rules. He was also of the view that the valuation made by the GTO in respect of the gifted properties was reasonable. He, therefore, confirmed the action of the GTO. The assessee appealed before the Tribunal. On behalf of the assessee, it was vehemently urged that the assessment was void ab initio inasmuch as necessary notices were not served on all the legal heirs of the deceased-donor. It was submitted that if the notice was served on only one of the legal heirs, there would be no complete representation of the estate and the proceedings would be wholly invalid. It was, therefore, urged that the orders of the lower authorities should be set aside on grounds. On merit, it was contended that the valuation made in respect of the gifted properties was excessive and without any basis whatsoever. On behalf of the Department, it was contended that it was the duty of the legal heirs of the donor to bring the names of all the legal heirs to the notice of the GTO. It was pointed out that in response to the notice served by the GTO the donee had filed a return. In view of this fact, it was submitted that the assessee could not challenge the validity of the assessment on the ground that notice were not served on all the legal heirs of the donee. On merit, the Revenue contended that the value of the building and agricultural lands measuring about 17 acres was not less than Rs. 1,25,000. It was, therefore, submitted that the value determined by the lower authorities in respect of the gifted properties was fair and reasonable. The Tribunal following the principles laid down in the cases of ITO vs. Meramreddy Solochanamma (1971) 79 ITR 1 (SC) and in Chooharmal Wadhuram vs. CIT (1971) 80 ITR 360 (Guj) came to the conclusion that the assessment made by the GTO in the present case, without serving notices on all the legal representatives of the donor, was void and was fit to be annulled.

(3.) OUR attention has been drawn to the decision of the Karnataka High Court in the case of K. Ashok Kumar & Ors. vs. CIT (1987) 59 CTR (Kar) 124 : (1986) 162 ITR 543 (Kar). One Muddusuvarna was the original assessee. For the asst. yr. 1973-74 he was served with a notice under S. 139(2) of the IT Act, 1961, but he did not file the return. He died on 29th January, 1975, leaving behind him his wife and children including the eldest son, Ashok Kumar. After his death, the ITO again issued a notice to Ashok Kumar under S. 139(2). Ashok Kumar filed a return on 6th March, 1976, and continued to participate in the assessment proceedings. The ITO sent a draft assessment order to Ashok Kumar as required under S. 144B. At that stage, Ashok Kumar, pointed out in his letter dt. 4th March, 1977, that there are also other legal representatives and the estate of Muddusuvarna was, therefore, not properly represented since they were not notified. The ITO however, did not issue notices to the other legal representatives. The proceedings continued and the IAC made an order under S. 144B whereby the assessment was completed on 30th August, 1977. At that stage, the ITO intimated all the legal representatives about the income assessed, etc. The assessment was made on Ashok Kumar as the legal representative of the estate of Muddusuvarna. Against the assessment order, Ashok Kumar preferred an appeal to the CIT(A). One of the contentions raised in the appeal was that the estate of Muddusuvarna was not properly represented and all his legal representative ought to have been notified. The CIT rejected that contention, although he gave some relief on the merits of the matter. Thereupon, the assessee preferred an appeal before the Tribunal. It was contended before the Tribunal that the assessment order was invalid since all the legal representatives of Muddusuvarna were not notified. On behalf of the Revenue, it was contended that Ashok Kumar, having participated in the proceedings as a legal representative of Muddusuvarna, he could not raise the contention regarding the validity of the assessment. It was urged that if any such contention could be raised, it could be only by the other legal representatives of Muddusuvarna and not by the Ashok Kumar himself. The Tribunal rejected the contention urged for the Revenue. It held that Ashok Kumar could raise the objection of procedural irregularities as to the want of notice to all the legal representatives of the late Muddusuvarna. It also held that the invalidity has occurred from the stage of S. 144B proceedings when Ashok Kumar raised the said objection before the ITO. Consequently, the Tribunal set aside the assessment order and directed the ITO to proceed with the assessment de novo from the stage of S. 144B proceedings after issuing notices to all the legal representatives. However, it did not agree with the contention of Ashok Kumar that the entire assessment proceedings should be annulled. The question was whether the Tribunal was right in holding that the assessment should be done de novo from the stage of S. 144B proceedings after issuing notices to all the legal representatives. There the contention raised was that the initiation of the assessment proceedings was bad since the estate of the late Muddusuvarna was not fully represented before the ITO and the ITO issued a notice under S. 139(2) only to Ashok Kumar and he ought to have issued such notices to all the legal representatives. There the Karnataka High Court held thus :